PALM oil prices are rallying and so are share prices of plantation companies on Bursa Malaysia. With IOI Corp Bhd hitting its all-time high and Golden Hope Plantations Bhd at a multi-year high, optimism surrounding plantation stocks is at a near fever pitch. A global push towards biodiesel is a key factor in the increase in crude palm oil prices, which has a favourableimpact on plantation stocks on Bursa Malaysia. STARBIZ asked Golden Hope chief executive Datuk Sabri Ahmad to shed some light on what is happening in the plantation sector and its outlook.
Q: The plantation sector is staging a rally on Bursa Malaysia. Do you think this is sustainable?
A: The present rally of the plantation sector is supported by positive responses from investors on policies, strategies and incentives on biotechnology and biofuel in Budget 2006, which will directly translate into a higher demand for palm oil.
The labelling of trans-fatty acid in the United States, full implementation of World Trade Organisation (WTO) in China in 2006, and utilisation of palm oil biomass are also positive contributing factors. Moreover, festive seasons around the corner may also take crude palm oil (CPO) price upward with rising demand from importing countries in the Middle East and South Asia.
The industry is optimistic of the CPO price which is approaching RM1,500 per tonne and will possibly reach RM1,550 per tonne in the near future. This favourable price trend will translate into higher bottom line performance of plantation companies.
I feel that the sustainability of the current rally in the stock market depends on the development of biofuel in the country and movement of petroleum prices. Correction and adjustment are expected. However, I am hoping that the price increase would be at a reasonable pace. If the price goes too high, for example above RM1,800, biodiesel using palm oil may not be profitable.
Q: What would be the factors driving the plantation sector forward?
A: The major factors driving the plantation sector forward are:
Q: Many people regard the biodiesel push to be a long-term one. When do you expect to put up your project if any, and potential payback? What would the payback period be?
A: Golden Hope will begin its biodiesel projects in Malaysia very soon and hopes to start production by the end of 2006. Venturing into the biodiesel project makes business sense as it will help boost the country’s palm oil industry and create a new stream of revenue.
Biodiesel refers to chemically reacted vegetable oils to produce methyl esters that have properties similar to petroleum-based diesel. Biodiesel is made from rapeseed oil, soy oil, palm oil, coconut oil, sunflower and other edible oils, and blended with diesel from fossil fuel.
Palm oil is renewable and healthier. It does not pollute the environment. Blending palm oil with diesel will, therefore, reduce the pollution level.
As many countries race towards reducing green house gases by 5% relative to the 1990 level by 2008-2012, the demand for biofuel will increase tremendously
In Malaysia, if only 5% of palm oil is blended with diesel, a total of 500,000 tonnes of palm oil will be utilised for this purpose each year.
A mere RM100 increase in the price of palm oil will translate into RM1bil additional revenue to the industry.
Malaysia’s move towards biofuel would help stabilise the price of palm oil as proven in the case of other vegetable oils used in biodiesel.
The introduction of the biofuel policy could be the first step towards making Malaysia a main player in the global biofuel/biodiesel production, together with others, such as Germany, France and Italy.
Golden Hope’s biofuel project in The Netherlands is in the final stages of evaluation.
On May 20, a memorandum of understanding (MoU) was signed between Rubiatec Sdn Bhd, a wholly-owned subsidiary of Golden Hope and Biox Group BV, Europe’s largest and fastest growing supplier of biofuel for energy generation.
Under the MoU, Rubiatec plans to supply stearin to Biox for use as biofuel to generate energy for power generation plants in The Netherlands. This programme manifests Golden Hope’s participation in the National Biotechnology Policy launched by the Prime Minister recently.
The potential for payback is very good as market research indicates very high returns from biodiesel for reasons mentioned above. In fact, we expect the payback period to be below three years.